Gupta-friendly third version may be death knell for industry
The ANC’s reaction to the mining charter has been interesting and telling. I take heart from the fact that ANC secretary-general Gwede Mantashe wants to meet urgently with Mineral Resources Minister Mosebenzi Zwane to discuss his concerns.
But I am perplexed that this is necessary as Zwane is an ANC cabinet minister implementing ANC policy (one assumes) and the charter would presumably have been approved by the Cabinet (almost exclusively ANC) before its release. Should one read into this that the charter is either not aligned with ANC policy or is inconsistent with the version Cabinet approved?
Regardless, assuming Zwane does avail himself for engagement, it might be useful to proffer a critique of this critical document that will either speed up the demise or relaunch the mining industry Mantashe and I care for and have been involved with for close on 40 years.
Of course, we have had very different experiences with the industry, but we have never had cause to doubt the other’s commitment to transforming this bedrock industry into one that best serves the interests of all the people of SA.
No one can fault the vision of Mining Charter 3: “To facilitate the sustainable transformation, growth and development of the mining and minerals industry.” Again, it is common cause that: “The Mineral and Petroleum Resources Development Act has transferred the ownership of the mineral wealth of the country to all the people of SA.”
As the owner of the mineral wealth, it is indeed up to the state to decide to whom and at what price it will let others exploit this national asset. As this is the third charter, one should be able to objectively measure how the previous two charters performed against the vision of transformation, growth and development. To the extent that some transformation was achieved, but no growth or development, it would have been rational to expect a refinement or rebalancing to tackle such clear failings.
We have never defined “nirvana” — the happy end-state of this industry — and not a single stakeholder can believe this is now the third and final step.
Uncertainty results in different behaviour among employees, investors and communities, but it never facilitates the longterm decision-making or shortterm compromises that are in the best interest of the industry.
Despite the shock and horror with which the charter was met on Thursday, the almost 5% drop in share prices of South African-related mining companies shows there is not really an expectation that this version of the charter will be implemented. If the market believed it was now law, share prices would have certainly dropped by 35% to 50% and boards would have convened urgent weekend meetings to decide on how they would deal with their noncompliance, which in terms of the current version is inevitable.
It is not useful to speculate about why a highly compromised minister who has done little to provide strong leadership to a struggling industry would deliberately destabilise the industry and its companies.
This does happen in the context of state and corporate capture, with the ANC going into its own inward-looking processes of policy and elective conferences; but if we assume the previous two charters effected irreparable damage to jobs, as well as the development of the industry, then the timing of this version is irresponsible, if not downright malicious.
The Chamber of Mines has vowed to urgently interdict this version of the charter, presumably on the grounds of lack of consultation – and one assumes they will also argue that the suspension of the declaratory order process was agreed to upon the understanding that the “once empowered, always empowered” principle was accepted.
This charter is also trying to legislate a new Gupta-friendly definition of black persons. It also illegally diverts levies towards the new Mining Transformation and Development Agency and even levies a new revenue royalty – which is the sole prerogative of Treasury.
It overextends (no doubt at odds with the Constitution) affirmative action quotas and prescribes actions by companies (and therefore by their directors) that are in breach of JSE rules, memoranda of incorporation and fiduciary duties.
As someone who has spent years trying to attract necessary capital to an ageing industry, I believe this charter will decimate share prices and make new investment impossible. We should all care about that.
The key commercial responsibility of a board of directors is capital allocation. When governments interfere in this space, it should be with caution.
Responsible consequential thinking should result in proper cost-benefit evaluations.
Forcing mining companies to fund uneconomical beneficiation, historically black universities and communities may make perfect sense for one agenda but comes at the cost of another: the growth, sustainability and ultimate survival of the industry.
By far, the most ill-conceived and value-destructive part of the charter is the new, expensive and yet valueless black shares it aims to create. These shares are designed to result in 30% of a company being transferred (at huge cost to the company, but without a cent of investment from the beneficiaries).
The simplest of analytical models would show that no employee or community member is likely to see a cent of benefit from this during the first 10 years.
These shares are not tradeable, have no capital value and will depend solely on the board declaring dividends.
Smart capital allocation over 100 years has shown that mining companies are not known for their dividend yields. More unhappiness and frustration among employees and communities is guaranteed.
In an industry that is struggling financially, undercapitalising its ore bodies due to capital constraints and is under attack by the ANC, the government and society, this may truly mark the beginning of the end.
Cleverer people than me could no doubt demonstrate how this will destroy share process, market capitalisations, investments and jobs.
As a very small and insignificant player in the international and capital markets, SA doesn’t get to make the rules. We own the pitch and the ball – but if we want to play soccer, we have to play by the rules of the soccer-playing world.